Question

Nidhi, Pranav and Ishu were partners in a firm sharing profits and losses in the ratio of 5 : 4 : 1. With effect from 1st April, 2024, they decided to share profits and losses in the ratio of 4 : 1 : 5. On that date, there was a debit balance of ₹ 4,00,000 in the Profit and Loss Account. The necessary journal entry to show the effect of the above will be :

• A. Ishu’s Capital A/c Dr. 1,60,000
  To Nidhi’s Capital A/c 40,000
  To Pranav’s Capital A/c 1,20,000
• B. Profit & Loss A/c Dr. 4,00,000
  To Nidhi’s Capital A/c 2,00,000
  To Pranav’s Capital A/c 1,60,000
  To Ishu’s Capital A/c 40,000
• C. Nidhi’s Capital A/c Dr. 2,00,000
  Pranav’s Capital A/c Dr. 1,60,000
  Ishu’s Capital A/c Dr. 40,000
  To Profit & Loss A/c 4,00,000
• D. Nidhi’s Capital A/c Dr. 40,000
  Pranav’s Capital A/c Dr. 1,20,000
  To Ishu’s Capital A/c 1,60,000

Hint:

Losses in the P and L account are shared by the partners in the old ratio before a change in the profit-sharing ratio.

Answer 1

The Correct Option is B

Loss recorded in Profit and Loss account amounts to ₹ 4,00,000.

This loss will be allocated among partners based on their existing profit-sharing ratio of 5 : 4 : 1.

Nidhi's share = (5/10) × 4,00,000 = ₹ 2,00,000
Pranav's share = (4/10) × 4,00,000 = ₹ 1,60,000
Ishu's share = (1/10) × 4,00,000 = ₹ 40,000